Following our May 10, 2015 publication on “How to buy a Nigerian bank with no money” and the series on why Skys Banks’s bid for Mainstreet Bank was a certain death knell for the bank; viz: “Reworking the Acquisition Maths of Mainstreet Bank by Skye Bank Plc” and “The Surprising New Math of Acquisition of Banks in Nigeria – The Skye Bank Case”; we have received a deluge of information and insights that has encouraged the belief that the operators in the Nigerian capital market are fundamentally hardworking men seeking the reversal of the normalization of absurdities that ensue.
Recent developments in the market however indicate that the non-resolution of key issues around regulatory oversight continues to harm the efforts of well-intentioned professionals to establish a culture of accountability, process, probity and best practice. Most of these issues were easily predicted but more curious in the case of Ecobank was that they were audited and investigated by regulators and independent professional firms; yet no discernable actions were taken.
How a “Results Release” Empowered a Review
After the deluge of 2016 Annual financial accounts of key entities on the bourse and especially those in the financial services sector in Q1 2016; we have had cause to review the finer details of the returns given the key issues around quality of assets, legacy debts, difficulty in resolution of AMCON related loans and the general management of the banking entities during a very difficult time especially after the release of the financial stability report and ratings by credible rating agencies.
In the course of this review, interest was raised concern a disclosure by Ecobank Trans international Plc (ETI) in its release to the bourse and market as captured here
ETI Declares N52.6bn Loss After Tax in 2016 Audited Results (SP:N8.20k), where it stated that:
“Full impairment losses on financial assets of $864m absorbed, predominantly from specific client names related to a legacy portfolio experiencing deterioration in quality”
This immediately raised our curiosity as we had covered developments around the challenges in the bank from 2013 up to and including 2016; especially during the public governance challenges raised then which has since been resolved.
A few enquiries soon revealed that of this $864m impairment, about $600m should relate to share purchase/margin loans portfolio issues arising from a public offer issued by ETI; and adjudged successful by management and SEC.
Who Owns the Shares After the Write-Offs?
The immediate questions arising centered around the following:
Who were the obligors?
What was written off and against whom and why?
What happened to the shares written off?
Who are the current owners (controlling and non-controlling) of the shares today?
Soon enough, these concerns grew into a much larger reality and remain pertinent given the unresolved issues and concerns raised and escalated to the Securities & Exchange Commission (SEC) in 2014; and became a public matter.
The Ernst & Young’s 2014 audit review, commissioned by the ETI board sub-committee to enable the group respond to observations made in the regulators reports and to empower the management respond to the concerns of the board on related matters; the scope of work covered:
Examination of ERTI’s Share capital since incorporation;
Review of consultants contracts issued by ETI between 2005 and 2013;
Review of the specific questions raised by regulators, with specific reference to BEWCASTLE, WAVES BUILDING acquisition and oceanic bank transactions;
Review of the Ecobank’s 2008 public Offer; and
Review of Ecobank Nigeria’s margin loan portfolio.
